Monday, September 22, 2014

On
July 1, 2014
the cashless policy introduced by the Central Bank of Nigeria (CBN)
became operational in all thirty-six Nigerian states and Abuja.
Hitherto, the cashless policy was already in operation in about eight
locations, distributed in business zones around the country. The
cashless policy in Nigeria aims to engender financial inclusion by
limiting the volume of cash transactions. The policy stipulates a "cash handling charge" on daily cash withdrawals or cash deposits
that exceed N500,000 (about US$3,030) for individuals and N3,000,000
(approximately US$18,190) for corporate bodies. The new policy on
cash-based transactions (both withdrawals and deposits) in banks aims
at reducing the amount of physical cash (coins and notes) circulating
in the economy, and encouraging more electronic-based transactions in
payments for goods, services, and transfers, among others.

In
designing the policy, the CBN envisioned it as a means of curbing
negative consequences that arise from the heavy usage of cash in the
economy such as: the high costs of printing, handling, transporting,
and storing cash; the high risk of using cash (such as robberies and
other cash-related crimes); the circulation of money outside of the
formal economy; and inefficiency and corruption, both of which are
more easily facilitated with cash. On the basis of the forgoing
observations about the use of cash, the deployment of e-banking and e-payments platforms has been touted by the CBN as a veritable "way out of the
woods." Setting daily limits on automated teller
machine (ATM) withdrawals is an integral part of the CBN’s cashless
policy. However, banking and finance technologies such as
ATMs are also associated with instances of fraud. Despite this, the victims' perspectives that would allow policymakers to make informed
decisions and address emerging challenges associated with
crime-related problems stemming from the cashless policy are rarely
documented. The problem is phenomenal when considering the number of clients who use ATMs.

ATM
cardholders do not usually have just one card. The possession of ATM
cards for different banks is a rational attempt to avoid the charges
placed by banks on clients from another bank using their machines.
Until it was stopped by the former CBN governor, Sanusi Lamido
Sanusi, the charge was N100 (about US$0.63) for every transaction.
Clients therefore reported that they were conscripted not only to
obtain ATM cards for their accounts, but also to use their bank’s own ATMs as they were charge-free. Most cardholders obtained their cards due to coercion, particularly through imposition of charges on manual
withdrawals, while others obtained the card voluntarily.

As
a banking and payments technology under the cashless policy, clients use ATMs to
check account balances, transfer money, withdraw cash, recharge
phones, and pay for utilities such as electricity and digital
satellite television services, among others. We found that knowledge
of this technology influenced the extent to which it could be
explored. Despite this, participants in our study reported that their primary
motivation for using ATMs was that they more easily facilitate access
to cash.

Sensitive
to the potential security challenges in using this platform, the study participants altered their routine activities to a "safe period" of the day before using the ATM. The time of day that participants preferred for withdrawals was related to ease of access and security.
For instance, withdrawing money very early in the morning was a
rational decision because foot traffic would be
lower and participants would have easier access to ATMs. Moreover, very few participants--except those needing money to execute
transactions--opted to withdraw cash during the day owing to network
problems and long queues. Withdrawing at night had significant
security challenges as ATM cardholders risked being robbed or
otherwise dispossessed of their cash.

At
the functional level, ATM usage has reduced long hours of queues in
the banking halls emblematic of the pre-cashless policy era, while it
has influenced the spending culture of users. With respect to usage,
the challenges listed by participants included: cash dispensing
errors; infrastructural problems associated with the ATM network, which often deny clients access to their money when they need it; and ATM fraud. Despite these challenges, the availability of
money within any locality where ATM machines are located seems to be
endearing users to e-payments systems in Nigeria. This
development has potential for fostering financial inclusion.

You can read Oluwatayo Tade and Oluwatosin Adeniyi's full report here.

Monday, September 8, 2014

By IMTFI researcher Milind Sathye
The ever-increasing penetration of mobile phones presents enormous opportunities for women micro-entrepreneurs (WMEs) in developing countries, including Pacific island countries such as Fiji, to grow their businesses. Existing research by organizations such as the GSMA suggests that mobile services are being utilized by women to empower their lives. The Cherry Blair Foundation for Women cites several studies in countries such as Indonesia, Egypt, and Nigeria in which nearly 88% of the women interviewed desired mobile value added services (MVAS) to grow their businesses. Prior studies by the IMF in Africa have found that MVAS contributed significantly to the growth of micro-enterprises. Delivery of MVAS such as m-banking and m-enterprise services to WMEs is particularly important for business growth through access to information, payment services, advertising, communication, and is found to enhance social welfare leading ultimately to poverty alleviation.

Fast food/tea vendor (WME), Suva, Fiji (Photo by Milind Sathye)

A
team consisting of Prof. Milind Sathye, Prof. Biman Prasad, Prof.
Dharmendra Sharma, Dr. Parmendra Sharma, and Dr. Suneeta Sathye
proposed to study the unexplored situation in Fiji and identify the
challenges faced by WMEs in the use of MVAS so that suitable policy
initiatives could be taken by the Fijian government for faster growth
of this sector. We focused on WMEs because of their importance from
the standpoint of inclusive growth. The International Centre forResearch on Women found that ‘improving women’s access to
technology has the potential to spur their economic advancement and
stimulate broader economic growth. Regrettably, technology has been
underused in unlocking women’s economic opportunities’ (2010:2).

We
found that most WMEs owned Nokia phones, followed by Alcatel; other
brands such as LG, Sony, and Motorola were not used by many. Further,
a substantial proportion of respondents had prepaid subscriptions.
The average expenditure of respondents on mobile services was less
than US$16 per month, which the WMEs consider to be relatively high.
Few respondents used data service (such as emails, attachments, web
browsing) on their mobile phone while most were using SMS in addition
to voice. Availability of affordable data services would help access
to information and communication.

The
WMEs identified the following main challenges:

Access
to information: The
WMEs felt that government departments should provide information
about programs for women over the mobile phones, and that it should
also be possible for them to interact with the government via mobile.
The government agencies in Fiji were not making use of MVAS
capabilities, which is a major hurdle. It increases the transaction
costs for WMEs as they are required to deal with these agencies in
the traditional way, that is, by personal visits or through mail,
which is comparatively costly and time consuming.

Access
to training: The WMEs
desired basic training on the use of MVAS applications from
government agencies such as the National Centre for Small and Medium
Enterprises Development (NCSMED). Younger entrepreneurs were more
enthusiastic about the use of MVAS applications. Appropriate training
by government agencies for WMEs would help them realize the potential
of MVAS applications for the growth of their businesses.

Absence
of a forum:
Many WMEs stated that there is no forum available to discuss issues
related to mobile phone banking or MVAS. Consequently, the issues
remained unresolved. The Consumer Council of Fiji was unable to take
up their cases as WMEs are classified as ‘businesses’ and not as
‘consumers’.Over-regulation:
WMEs were unequivocal in their opinion that over-regulation is the
main problem that is hampering their growth. They are not allowed to
operate from home, which increases their operating costs. For
example, a day care centre can’t be run from the home of the WME,
and so one has to rent separate premises which increase operating
costs and also puts clients at a disadvantage.Access
to insurance, finance, and capital:
The WMEs stated that banks are reluctant to provide finance and
services like insurance to them. There are limited grants available
to WMEs, and the NCSMED could play a more proactive role. Some of the
WME respondents found the interest rates and bank fees to be
prohibitively expensive. Furthermore, the WMEs stated that even small
shocks from the market throw them out of business, but no policy is
currently in place that could help them overcome such situations and
revive their enterprises. Lack of capital was identified as the main
hurdle in business expansion.The
respondents stated that if these challenges could be addressed
through MVAS, they would be willing to use such services. Access to
business tools, access to mentorship, and access to markets were the
top three purposes for which the respondents would like to use MVAS
applications. The WMEs were also willing to pay for such
applications. When asked which platform they would be comfortable
with for accessing relevant mobile services, the respondents
indicated SMS, followed by IVR, WAP, and USSD.

The
interviews with WMEs revealed that they were aware of the value of
MVAS for business growth and were willing to pay for such services if
their business challenges could be addressed.

Interestingly,
despite the demand for MVAS, the providers of such services lagged
behind. We interviewed key industry experts and policymakers to
understand the supply-side issues. Seven major themes emerged from
these interviews:

Licensing
regime: It is
important that Fiji prescribes a licensing regime for MVAS players,
and such players could be brought under the license category of
‘other service providers’. MVAS needs to be accorded industry
status for there to be an orderly development.

M-payments:
While in some countries there is a resistance to m-payments as there
are concerns that it may lead to tax evasion, the experience of China
is different and such payments were found to have forced merchants to
report more of their sales than before, which increased tax revenue.
Fiji may like to consider similar measures.

Competition
from mobile network operators:
Financial institutions in Fiji are worried about competition from
mobile network operators (MNOs). The banks contend that such
operators are not considered as ‘banks’ and so are out of the
purview of banking regulation, which is detrimental to competition.
The Reserve Bank of Fiji, however, has concerns about the supply of
money, including electronic money, falling off of the radar.

Infrastructure
cost:
Industry representatives pointed out that the high cost of setting up
a mobile tower – anywhere between US$408,000 to US$489,000--is a
major hindrance to the rapid spread of MVAS. Because of the
competition between Vodafone and Digicell, the towers are not being
shared. Given that the population of Fiji is sparse, it would help if
either the government provided subsidies for tower construction or
there was legislation mandating that MNOs share towers for a price.

Lack
of interoperability:
The CEO of South Pacific Business Development (SPBD) stated that
mobile phone banking is still young in Fiji, with the major hindrance
being a lack of interoperability.

Misleading
statistics of penetration:
The CEO of SPBD stated that the statistics of mobile penetration are
computed as a ratio of the number of mobile phones or SIM cards
issued to a population, but many Fijians have multiple phones and
even tourists can have SIM cards. A more effective method would be to
count the number of mobile phone accounts.

Which
P2P model?
Of the three P2P payment models--that is, the remittance service
provider-dominated model, operator-dominated model and partnership
model--industry representatives believe that the partnership model
would work better for Fiji given the limited size of the market.

The view of the market where the fast food/tea vendor is located (Photo by Milind Sathye)

Overall,
MVAS can make valuable contributions to the growth of WME businesses
in Fiji, but their deployment is hamstrung by the policy hurdles and
industry challenges outlined above. Fijian authorities need to pay
urgent attention to remove the barriers for deployment of MVAS to
promote growth of WMEs, which in turn could help alleviate poverty. Read more about this research in a report by Milind Sathye and Biman Prasad.

Friday, September 5, 2014

IMTFI Fellow José Ossandón recently co-organized a mini-conference on "Domesticizing Financial Economies: Knitting Fibers of Transaction,
Algorithm, and Exchange." The event was part of a meeting of the
Society for the Advancement of Socio-Economics in July 2014. IMTFI Fellows Isabelle Guèrin and Magdalena Villarreal also participated, presenting results from their project on credit and wealth in India and Mexico, along with Lya Niño, who presented with Villarreal about their new research on the everyday economic practice of juggling currencies in trans-border contexts.José and his co-organizers Mariana Luzzi and Jeanne Lazarus wrote about the event and several of the issues raised there for the Estudios de la Economía blog and the Charisma Network. They explain that presenters focused on both the work of credit scoring and evaluations and on the consumer side of finance, and they suggest that research that complicates our understandings of the poor's financial ecologies allows us to re-think models of financial inclusion as well.